The Role of The External Auditor in Mitigating Earning Management Practices

A Field Study on Auditors in the Audit Bureau and External Audit Offices in Libya

Abstract

Objective: The study seeks to demonstrate the extent to which the external auditors in Libya apply the procedures that help in mitigating earning management practices, and consequently ascertain whether there is any discrepancy in terms of applying such procedures between auditors affiliated to the Libyan Audit Bureau and those working in the external audit offices.
Methodology: authors have used various descriptive statistical approaches to analyse research hypotheses. These statistical methods include using the mean and standard deviation values, t-test for the two independent samples (at a significant level of 0.05), as well as the Pearson correlation test.
Results: The results reveal that auditors of the Libyan Audit Bureau, and those affiliated with external audit offices apply appropriate procedures that mitigate earning management practices, which can improve the integrity of the financial statements. The obtained findings also suggest that there are no statistically significant differences between the opinions of the auditors of the Audit Bureau and the those of external audit offices regarding the application of procedures that mitigate earning management practices. Finally, our results indicate that there is a statistically positive and significant relationship between the application of auditors to procedures that mitigate earning management practices and the level of their awareness of these practices. 
Contribution: This study provides new evidence on the levels of applying procedures that mitigate earning management practices by the Libyan external auditors. Further, our study provide early evidence which indicate that the level of applying such procedures that mitigate earning management practices is significantly influenced by the level of awareness of external auditors of the earning management practices.
Study Limits: The current study is limited to demonstrating the extent to which the external auditors of the Libyan Audit Bureau and the auditors in the external audit offices apply the procedures that mitigate the earning management practices, and to clarify the relationship between the application of the auditors in the Libyan Audit Bureau and the auditors in the external audit offices of the procedures that mitigate the earning management practices